How to think about Setting Right Return Expectation
One of the most repeated question with my investors is how much return to expect in next 1-2 years or in others words they are seeking tools and framework to think about how to set right return expectation for short term .
Even thought equity investing is all about long term - but as investor looks multiple short term to get a better sense of long term as Keynes says in the long term ever one is dead .
In this post - my attempt to look at 3 individual data set which can give different vantage point of view and help to form an informed opinion on how to think about returns in the medium term.
1st data is about the recent quarterly result update from TOP 50 companies out of Corporate India
The aggregate sales growth is around 6% but the Profit figure of 1.98 lac Crs with growth of 4% in aggregate but if we exclude ONCG and BPCL due to huge swing in PAT during the quarter - the Aggregate PAT growth is around 12 %
The next level of data is very long term with last 10 year aggregate NIFTY 50 companies consolidated Financials
The aggregate share holders Equity of NIFTY 50 companies as on 2024 is around 48.85 Lac Crs with 10 year CAGR growth of around 12%.
Gross Block , Gross Sales and Operating profit grew in the range of 10-11% CAGR for last 10 Years .
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PAT of NIFTY 50 Companies grew from 2.55 Lac Crs in year 2014 to 8.24 Lac Crs PAT during year ending 2024 - with CAGR growth of 12% .
Last data is how NIFTY index has performed over last 25 Years
Over long period - NIFTY return is in the range of 11-14% with average is around 12% .
Based on current estimate NIFTY EPS for FY 2026 will be in the range of 1150 to 1200 which results in 20 to 21 times one year forward . Given the starting valuation which is slight premium to long term average - we should expect our return in line with long term average return of the market .
By setting appropriate return expectation - we can avoid few short term behaviour which can have significant long term impact to the portfolio .
After 4 years of strong bull market - its time to move up the quality ladder to build a resilient portfolio which can withstand the tough macro and create wealth sustainably
Happy Investing !!!
Data Analyst @DSM SOFT | Business Analytics | Business Intelligence | Discovering Insights To Drive Business Operations
2 个月Done a wonderful gathering. Glad to see these insightful stuffs !!
SixSigma Black Belt certified | Chartered Engineer | 22 years of Global work experience | Passionate about Strategic Business Development, Process improvement, Engineering, Training | Aspiring to be a Business leader
2 个月Thanks for your insights Balaji. My response to short-term(1 to 2 year) equity return expectations is that "It is a wild guess". However when investor do expect a figure I would go with 1 and 2 rolling return range. It would be a big range from -40% to +60%. So the answer wouldn't be any use if the investor is going to achieve a goal using the above range estimate. If they want a long term return expectation 7 and 10 year rolling return would be reasonably good. I would suggest to go with the lower of the range to keep it conservative and compensate the difference to average returns using higher savings rate to achieve the goal/required corpus.